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Pension

During an individual’s working years, the idea of “putting something aside” for life in retirement is often a primary consideration for many. Most times, the primary vehicle for survival beyond one’s career is a pension. Simply defined, a pension plan is a fund into which a sum of money is added during an employee’s employment years, and from which payments are drawn to support the person’s retirement from work in the form of periodic payments.

The pool of funds is invested on the employee’s behalf, and the earnings on the investments generate income to the worker upon retirement. A pension plan can come in two forms: defined benefit or defined contribution. In a defined benefit plan, the employer guarantees that the employee receives a “defined” amount of benefit upon retirement, regardless of the performance of the underlying investment pool.

With a defined contribution plan however, the employer makes specific plan contributions for the worker, usually matching to varying degrees the contributions made by the employees. The final benefit received by the employee depends on the plan’s investment performance. Some companies offer both types of plans and some plans may have features of both forms, defined benefit and defined contribution. That said, not all employers offer pensions. Government organizations usually offer a pension, and some large companies offer them. A number insurance and investment companies also offer pension plans (usually called deferred annuities) that an individual can choose to contribute to if one is not offered by an employer.

In effect, an individual’s retirement income can come from three different sources: Employer Pension Plans, Personal Savings and Government Benefits/Social Security Benefits.

Pension income upon retirement is typically viewed as any other form of income and as such is taxable. Understanding the relationship between pension and income and how each affect one another is extremely important. In essence, an individual is putting aside disposable income now in exchange for a future pay out (in the form of pension income). When considering how pension plans work, it’s important to remember that the earlier one starts, and the more an individual contributes, the better prospects of a comfortable retirement one can expect. Carefully choosing when to start your pension can greatly reduce your risk of running out of money during retirement years.

In T&T, a number of laws govern the administration of pension in the country (example, the Pension Act, the Senior Citizen’ Pension Act, and the Old Age Pensions Act). The National Insurance Board also makes pension payments to citizens in T&T. Every employee who has paid National Insurance contributions is entitled to a Retirement Benefit which can take one of two forms: A Retirement Pension payable for life to persons who have 750 weekly contributions or more - the minimum requirement for a basic pension; or a Retirement Grant, which is a one time lump sum payment, subject to a minimum sum of $3,000.00 paid to persons who have made less than 750 weekly contributions—the minimum requirement for a basic pension.